Why The New Centriq Server Processor Is Important To Qualcomm

Qualcomm (NYSE:QCOM) has started commercial deployment of its first ARM-based server processor called the Centriq 2400, as it looks to challenge Intel’s dominance over the market for data center processors while diversifying its revenue stream beyond the mobile market. The early outlook for the business seems promising, as the company appears to have some support from cloud computing industry’s biggest buyers. Below we take a look at what could lie ahead for Qualcomm in this business.

Qualcomm is touting lower costs and better energy efficiency as the two key selling points of the new processor. These two factors are becoming increasingly important to data center customers, as the market is undergoing significant changes, on account of the rise of cloud computing and processor-intensive operations such as machine learning, artificial intelligence, and data analytics. Data centers consumed about 3% of global electricity supply, and it is possible that the number could rise further, as cloud infrastructure grows. One key method to reduce power consumption is to use power-efficient processors. The Centriq 2400 is based on an ARM-architecture and is manufactured by Samsung, using its 10-nm FinFET process. While ARM designs haven’t found a strong uptake in the server space thus far, Qualcomm stands a better chance of success, as it is a top-tier ARM licensee (it has both architectural and core licenses from ARM) with significant experience in designing power-efficient mobile phone chipsets. For instance, Qualcomm expects the new chip to offer as much as 4x the performance per dollar and as much as 45% better performance per watt compared to competing products.

Why The Server Processor Market Is Important To Qualcomm

The semiconductor business is becoming increasingly important to Qualcomm, as it faces challenges from its bread-and-butter technology licensing business, which has been embroiled in multiple legal battles.The company has moved engineers from the Snapdragon mobile chip unit to the data-center chip unit to work on designs, indicating that it is taking the space quite seriously. The data center market could be valuable to Qualcomm for multiple reasons. Although server chips are a much smaller market in terms of volumes compared to mobile device chipsets, they have much higher ASPs and potentially better margins. For instance, the new Centriq chips will be priced at $1,995 each, compared to mobile chipsets which often cost under $50 each. The market conditions could also be conducive to Qualcomm’s entry. Intel practically controls the entire market for server processors (over 99% share), giving it significant pricing power. However, data center operators have been seeking a competitive alternative to Intel, that would give them more choice while driving prices lower and boosting innovation. This could indicate that they will embrace a compelling product from the likes of Qualcomm. For instance, both Google and Microsoft have both expressed interest in Qualcomm’s offering for their cloud computing initiatives.

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